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3271010
3271010
Problem:
The Central Valley Company is a merchandising firm that sells a single product. The company’s revenues and expenses fo
Central Valley Company
Comparative Income Statement
For the Second Quarter
April May June
Sales in units ……………………. 4,500 5,250 6,000
Sales revenue ……………… $630,000 $735,000 $840,000
Less cost of goods sold …… $252,000 294,000 336,000
Gross Margin ………………. $378,000 441,000 504,000
Less operating expenses:
Expense A ………………………..56,000 63,500 71,000
Q1. Determine which expenses are mixed and, by use of the high-low method, separate each mixed expense into its varia
Operating expenses
Expense A 56,000 63,500 71000
Expense B 70,000 70,000 70,000
Expense C 143,000 161,750 180500
Expense D 9,000 9,000 9,000
Expense E 42,000 42,000 42,000
Total Operating expenses 320,000 346,250 372,500
Net Income 58,000 94,750 131,500
ethod, separate each mixed expense into its variable and fixed components. State the cost formula for each mixed expense.
Answer 1
for high low method, april is the lowest point month, june is the
highest poiint month.
So, using high-low method, the variable porition will be (expense
in high month - expense in low month) / (sale in high month - sale
in low month)
Expense A = ($ 71,000 less $ 56,000)/(6000 less 4500) = $ 10 per unit
Cost formula
Total Cost = Fixed Cost add Variable cost per unit * Units
$ 71,000 = Fixed Cost add $ 10 * 6000
Fixed Cost = $ 11,000
Expense B, it is a fixed expense as the cost doesnot change at any level of units.
15,000 10
fixed
37,500 25 150000
fixed 30500
fixed
h mixed expense.